Habtamu Ali Beshir on the impacts of contemporaneous and early life price shocks on human capital production

On October 24 Habtamu Ali Beshir, PhD Candidate, Lancaster University, will present his research. 

Abstract: Impacts of contemporaneous and early life price shocks on human capital production

The effect of economic shocks on human capital is theoretically ambiguous due to opposing income and substitution effects. Using child level information on schooling, child labour, and test scores and time series data on real cocoa producer price from Ghana, in this study, I investigate the effect of cocoa price fluctuations on human capital production. In doing so, I link the fetal origins hypothesis literature with the old income vs substitution effects debate.

For old (school age) children the substitution effect dominates. Contemporaneous (school age) price boom decreases schooling and increases child labour. Specifically, I find that a standard deviation increase in the current year real producer price of cocoa significantly decreases current school attendance by 8 percentage points. In addition, a standard deviation increase in the previous year real producer price of cocoa significantly decreases the likelihood of being on the correct grade in the following year by 6.7 percentage points.

For young children, however, the income effect dominates. In utero real cocoa producer price boom significantly increases Raven/IQ score and grade attainment. Specifically, a standard deviation increase in in utero real cocoa producer price increases the correct Raven/IQ items answered by a child by 4.2 percentage points and increases completed grade by 0.38 year.

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